Even though the Gross Domestic Product (GDP) grew at 13.5 per cent during the April-June quarter, analysts said it was lower than expectations due to slightly weaker-than-expected growth in investments and a higher drag from net exports.

India’s GDP stands at ₹36.85 lakh crore, which has surpassed the pre-Covid levels and is 3.83 per cent higher than pre-pandemic levels. The GDP growth rate during the first quarter of the last fiscal (FY22) was 20.1 per cent, and 4.09 per cent in the previous quarter of the last fiscal. On Wednesday, Finance Secretary TV Somnathan said that India is on course to achieve a GDP growth rate of 7-7.5 per cent during the current fiscal.

Growth in manufacturing sector

“Though GDP grew in double digits, it came way below market expectations. The primary culprit was the growth in the manufacturing sector, which grew by a measly 4.8 per cent in Q1. We strongly believe that the estimation of manufacturing sector growth needs serious introspection in the sense that IIP is still indexed at 2012 base,” Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India, said in a report.

Considering the lower-than-expected GDP print in Q1 FY23, Acuité Ratings sees a downside risk of 30-40 bps to its full-year GDP growth projection of 7.5 per cent. Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research Ltd. “Beyond the base factor, the double-digit annualised GDP growth also signals a fairly healthy economic recovery after the prolonged pandemic, particularly in the context of the strong global headwinds. However, the 200 bps lower GDP growth print vis-à-vis expectations in Q1FY23 highlights the impact of higher commodity costs on corporate profitability levels and the slowdown in exports.”

Analysts at brokerage firm Anand Rathi said that despite a major drag from a high trade deficit and slow manufacturing activity, India recorded the best growth among major countries in Q1 FY23. “ Geopolitical uncertainty, continued supply-chain disruption, aggressive monetary tightening, and the withdrawal of fiscal stimulus would reduce global growth in the next 12 months. India too would be impacted, especially India’s exports. Yet, with strong domestic demand—both private consumption and fixed investment—we expect India to grow 7.5 per cent in FY23. High crude oil prices and a global recession are key risks,” Anand Rathi said in a report.

Ghosh said the lower growth in Q1 also compounds the RBI’s job, with a rate hike trajectory in the next two MPC meets trying to find neutral ground amidst growth and inflation. “ Clearly, a fine balancing act by the RBI would be on the anvil, keeping the rupee closer than ever to the centre,” Ghosh said.  

Moody’s forecast

The global agency Moody’s has cut India’s Gross Domestic Product (GDP) growth forecast by 110 basis points for the calendar year 2022. It now estimates growth to be 7.7 per cent in 2022, compared to 8.3 per cent in 2021. It also expects growth to be 5.2 per cent in 2023, lower than the previous expectations.

In May, the agency lowered India’s calendar-year 2022 growth forecast to 8.8 per cent from March’s 9.1 per cent, while maintaining 2023 growth estimates at 5.4 per cent.